CoD: Gazprom free to buy gas producers

Yesterday's decision of the Russian Federal Anti-Monopoly Service released Gazprom from prohibition to acquire gas producers. It is not clear what can prevent Gazprom from completely monopolizing the industry now. Novatek and Itera remain two major independent producers, but it is likely that Gazprom will target gaining control over them before the Putin's election.

It seems that Gazprom tries to resolve its major problem with production capacity by acquiring indep producers. This is a viable strategy on the company level, but it is hardly such on the country's level. In December, the government agreed on the energy strategy that required substantial increase of production from government independent companies even before 2010.

As Gazprom increases in size, it may pass the point of no return to make Russian gas industry competitive in the long-term. The company is not able to control its operating costs, and suffers from the lack of CAPEX. Going on acquisition spree, the company both increases its debt burden, reduces its manageability, and decreases incentives to become more fit.

The decision to expand Gazprom is dangerous, but it seems that nothing can be done about it. The company seems to become more powerful than the government itself, using the government as a tool, and not vice versa.